Investment research services are in a critical state of change both in terms of the customers served by the research firms (information buyers) and the structure of the research firms themselves (information sellers). Traditionally, large brokerage firms dominated the market for institutional investment research by providing end-to-end brokerage services for large accounts, while disseminating written work (“research”) to smaller accounts.
The increasing allocation of dollars to alternative asset management entities (e.g., hedge funds) is creating a new class of customer that is less concentrated, more diverse in research style, and more demanding with respect to the proprietary focus of the information. At the same time that the market is becoming more challenging to service, electronic exchanges have been placing considerable pressure on the trading commissions that have financed traditional Wall Street research arms. As a result, much of the research that previously generated income for firms has become commoditized.
The transition to the digital domain has affected research firms in ways other than lowering trading commission revenue. For example, information sellers are flooding the marketplace with investment information using various digital solutions to maximize their audience in hopes of offsetting declining commission revenue with revenue from the sale of research information. However, the near zero incremental cost of the delivery of digital information has inundated the market with investment research materials to the point that customers for such data are overwhelmed, and the incremental value of the information is close to zero. Such research is only valuable to a consumer if it attracts a buyer's, and because of the proliferation of sources of information and inability to quickly distinguish actionable information from stale information, most digital information fails to do so. This is partly because otherwise valuable, open channels with no incremental cost of delivery become completely clogged once opened. Information distribution systems that rely on email are unable to capture or hold a buyer's attention, and as a result a buyer's inbox is no longer an effective destination for valuable information, and instead has become a semi-categorized, bulk repository. From the buyer's perspective, the increasingly diverse nature and number of research providers makes it challenging to effectively filter incoming information. The flow of information has become so relentless that it is almost impossible to discern valuable information from chatter.
What is needed, therefore, is a research information marketplace that can effectively capture the buyers interest by increasing the relevancy of the information presented to them while protecting the interests of the sellers by maintaining the value of the data as long as possible.